Ethics for Accountants

Transcription

1 Osborne Books Tutor Zone Ethics for Accountants Answers to chapter activities Osborne Books Limited, 2016

2 2 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 1 Principles of professional ethics 1.1 International Ethics Standards Board for Accountants (IESBA) which is part of the International Federation of Accountants (IFAC) 1.2 Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour 1.3 When a member of the accounting profession is straightforward and honest in performing professional work he/she is complying with the fundamental ethical principle of integrity. 1.4 (c) Objectivity 1.5 (c) Diligence 2 Threats and safeguards to fundamental ethical principles 2.1 (a) Confidentiality If Brian provides Overten Ltd with professional advice it will be difficult for him to keep information about each client confidential. Even if he is able to do so each client may perceive that he will use confidential information about it to benefit the other. Objectivity giving advice to one client regarding the take over of another client would be difficult for Brian. If he manages to remain independent there is still the possibility that each client may perceive that he is favouring the other. It is unlikely that Brian will be able to overcome the threats to his fundamental ethical principles or reduce them to an acceptable level. Therefore he should not agree to provide the professional advice to Overten Ltd.

3 a n s w e r s t o c h a p t e r a c t i v i t i e s (a) Professional competence and due care despite having attended a course on inheritance tax this did not cover tax planning and Lydia has never done any of this type of work. If she takes on sole responsibility for John Reynolds she will not have the necessary skills to carry out the work to the required standard. This means that her professional competence and due care will be threatened. Self-interest threat Jacob has indicated that if Lydia does a good job for John Reynolds she may gain a promotion. Therefore, it is in her interest to take responsibility for his inheritance tax planning. 2.3 (a) Advocacy threat if Grace agrees to provide the testimonial for Morden Ltd s website she would be actively promoting the client s product and so would be facing an advocacy threat to her fundamental ethical principles. Self-interest threat the offer of a year s supply of the product for Grace and her family means that Grace could personally benefit if she provides the testimonial for Morden Ltd. (c) If Grace agrees to provide Morden Ltd with the testimonial her independence and hence objectivity will be most threatened. There are no fixed rules on whether a professional accountant can or cannot accept a gift from a client. Grace will be expected to use her professional judgement to decide whether she can accept the gift. As it is likely to have a significant value she would probably decide not to accept it. 2.4 (a) Confidentiality if Pearce provides his Uncle George with the management accounts of his client, Rufus Pet Supplies Ltd, he will be in breach of the fundamental ethical principle of confidentiality. Professional behaviour knowingly providing a third party with confidential information about a client breaches accounting regulations and consequently brings the accounting profession into disrepute. This is a familiarity threat to Pearce s fundamental ethical principles. The fact that the request for the confidential information is being made by his uncle, George Hamersley, makes it very difficult for George to refuse. 2.5 (a) Objectivity although Damien has completed the assignment for Melissa he must be seen to be independent from the client. To an outsider the offer of the season tickets could be seen to compromise Damien s independence. The value of the two season tickets is likely to be high. Although there are no strict rules on the value of gifts that an accountant is permitted to accept from a client it is likely that Damien will use his professional judgement and decide he is not able to accept them.

4 4 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 3 Objectivity and the resolution of ethical conflict 3.1 False The Code of Ethics issued by IESBA does not set out strict rules that professional accountants must follow. It provides guidance on taking a conceptual framework based approach to ethical decisions, that identifies, evaluates and addresses threats to compliance with the fundamental ethical principles. 3.2 Example of behaviour by Upwell Ltd s management Freddie s personal value Is there a conflict to resolve? Management are given two weeks extra holiday compared to other staff. Customers can view the supply chain for all products sold on Upwell Ltd s website. Fairness Yes Transparency No 3.3 (a) Dan is offering Toni two gifts. In this situation her objectivity may be threatened which could influence any future decisions that she makes in relation to her client, Dan Seagrave, and affect her independence. Toni must use her professional judgement to decide whether she can accept either of these gifts from Dan. The offer of a complimentary meal is being made to all of the team who worked on Dan s accounts so she can probably accept this gift without compromising her objectivity. The offer of a 50% reduction on the price of her wedding reception, should she choose to have it at Dan s restaurant, is very generous. This would not be something Dan would normally offer during the normal course of business. Toni should decide that she cannot accept this gift and therefore thank Dan for his kind offer but politely decline. 3.4 (a) Objectivity acting for two clients that both wish to acquire the same premises would be difficult for Sandeep. Even if he is confident that he can remain independent there may be a perception by each of the two clients that he is favouring the other. Confidentiality it will be difficult for Sandeep to keep information about each client confidential. Even if he does manage to maintain confidentiality each client may still perceive that he will use confidential information about it to benefit the other. The process Sandeep should go through is: Consider the relevant facts and ethical issues that this situation raises Consider whether Passandra & Co has an established procedure for dealing with

5 a n s w e r s t o c h a p t e r a c t i v i t i e s 5 conflicts of interests between clients Decide the alternative courses of action that are available to him Select the course of action that is most consistent with his fundamental ethical principles Discuss the issue with senior management at Passandra & Co Document the facts relating to this ethical issue and any discussion he has had with senior management (c) It is very unlikely that the threats to his fundamental ethical principles can be eliminated or reduced to an acceptable level. However, in the unlikely event that Sandeep decides he is able to act for one of the clients he must consider what safeguards he can put in place so that his relationship with the other client does not affect his professional judgement and objectivity. These safeguards must also ensure that he does not breach the other client s confidentiality. 3.5 (a) Bribing another Receiving a bribe Bribing a foreign official Failure to prevent bribery 10 years imprisonment and/or an unlimited fine 3.6 (a) Boyd is employed by Whizzy Interactive Ltd and therefore is expected to be loyal to his employer; however he also has a duty of loyalty to his profession. There is a significant risk that the business is acting illegally by engaging in industrial espionage. This would be contrary to Boyd s fundamental ethical principles of integrity and professional behaviour. Boyd should try and discuss this issue with Lloyd to clarify what he has been asked to do, although this may be difficult without involving Josh Boyd should also consider discussing the issue with a more senior member of staff at Whizzy Interactive Ltd. If they are aware of the possible espionage Boyd should try and persuade them not to act illegally If Whizzy Interactive Ltd has a formal dispute resolution process Boyd should consider using this to escalate the issue although this may be difficult as Josh is a partner in the business Boyd can also consult with his professional accounting body and take legal advice Ultimately if there are no other options open to Boyd and he feels that the threats to his fundamental ethical principles cannot be eliminated he may have to offer to resign from Whizzy Interactive Ltd

6 6 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 4 Professional and technical competence 4.1 Reading professional journals Enrolling on updating courses Complying with continuing professional development requirements (CPD) for professional accountants 4.2 Two of the following: Obtain additional advice or training Ensure that she has adequate time to carry out the work Obtain assistance from someone with the necessary expertise Consult with a more senior member of staff at Realgo Ltd, independent experts or her professional accounting body 4.3 Breach of contract Professional negligence 4.4 (a) Rhiannon and her staff must ensure that they are up-to-date with the following (two answers): Accounting regulations Tax legislation Money laundering regulations Financial reporting standards Rhiannon s practice primarily provides services to sole traders and partnerships; these businesses must comply with requirements for accurate accounts preparation and tax returns. Rhiannon must also protect herself and her practice against the risk of money laundering. Other areas such as auditing, company legislation, changes in ethical codes and changes in other areas of criminal law such as bribery and fraud are not critical areas for Rhiannon s business.

7 a n s w e r s t o c h a p t e r a c t i v i t i e s 7 Pettini & Floyd must ensure that its staff keep up-to-date in the following (two answers): Changes in auditing standards Changes in accounting regulations Money laundering regulations Financial reporting standards Changes in company legislation Pettini & Floyd provides auditing services to its clients and prepares financial statements; therefore staff must be kept up-to-date on these critical areas. They must also be up-to-date on money laundering regulations. All firms of accountants have a duty to stay up-to-date with money laundering regulations. As Pettini & Floyd do not provide taxation services it is not critical for staff to receive regular taxation training. 4.5 Professional indemnity insurance

8 8 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 5 Confidentiality 5.1 (a) This information is personal to Lorna so it is her choice as to whether she explains her reasons for leaving Oldroyd & Vaughn. (c) Lorna has a duty of confidentiality to her former employer and its clients that extends beyond the end of her working relationship. Therefore she cannot disclose this information to her new manager. Also, this type of behaviour would be contrary to her ethical principles of integrity and professional behaviour. Lorna is allowed to use general knowledge and experience gained from previous employment but not specific information covered by her duty of confidentiality to the employer or clients. Therefore she can run a training course for the staff at her new employers provided she does not use specific information about previous clients. 5.2 When authorised by a client or employer When disclosure is required by law Where there is a professional duty to disclose 5.3 José cannot provide the information without first requesting authority from the client. Although written authority would be best, verbal authority is acceptable. Provided he receives this authority he can then give information to the printing firm. He should include a disclaimer making it clear that this is only for use by the printing firm and is given purely to help them to make a decision about whether or not to supply goods on credit to the client. He should also explain that the information is given without any financial responsibility on the part of his firm of accountants. 5.4 Notification

9 a n s w e r s t o c h a p t e r a c t i v i t i e s 9 6 Codes of conduct and organisational values 6.1 Nigel appears to have identified possible unethical behaviour on the part of the Sales Director as he is providing the client with a very large discount and does not wish the Managing Director to know about it. Nigel is in a difficult position as the Sales Director holds a more senior position than him at Toross Ltd. Nigel must ensure that he has all the relevant information relating to the Sales Director s request. He should then discuss his concerns with another director of the business, for example the Finance Director or the Managing Director. If Nigel does not believe that the director has dealt with the issue appropriately then Nigel should consider taking advice from his professional accounting body as to what further action he should take. In this situation Nigel should not simply re-issue the invoice with the additional discount, as this would be contrary to his fundamental ethical principles. 6.2 (a) Bringing the accounting profession into disrepute Acting in breach of the rules and regulations of the accountant s professional body The individual accountant s professional accounting body The Financial Reporting Council (FRC) 6.3 (a) Seth must tell the Managing Director that unless the business declares the error to HMRC his practice can no longer work for Coxpenny Ltd as the money that has not been paid to HMRC constitutes criminal property. By retaining this money Coxpenny Ltd could be charged with money laundering. Due to the size of Seth s practice he will not have a Money Laundering Reporting Officer (MLRO). Therefore he must submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA). (c) If Seth continues to act for Coxpenny Ltd then he is facilitating its retention of the money that should have been paid to HMRC. In this situation he will be engaged in money laundering. He may also be guilty of the crime of failure to disclose. Once Seth becomes aware of the error he should report to the National Crime Agency that he suspects Coxpenny Ltd of money laundering. In these circumstances he will be protected from a claim by the client of breach of confidentiality. As Seth is aware that he may also have been involved in money laundering he needs to make an authorised disclosure regarding Coxpenny s refusal to disclose the error to HMRC. 6.4 (a) The Proceeds of Crime Act (POCA) The Terrorism Act 2000 The Money Laundering Regulations 2007 (1) National Crime Agency (NCA) (2) Money Laundering Reporting Officer (MLRO) (c) An unlimited fine or a prison sentence of up to 14 years

10 1 0 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 7 Sustainability 7.1 (a) Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Economic growth Environmental protection Social equality 7.2 (a) An organisation will give details of its success in supporting and promoting sustainability in a Corporate Social Responsibility (CSR) Report (c) The public and investors are keen to know a business s attitude to sustainability and the way it affects how the organisation operates. They tend to look more favourably on organisations that have set sustainability targets and have made progress towards achieving their CSR goals. Reputational risk is the risk of loss resulting from damage to an organisation s reputation. An organisation will include its sustainability targets in its Corporate Social Responsibility (CSR). When it produces a CSR report this will show its progress towards these targets. There is a risk to an organisation s reputation if it reports negative results. However the fact that a business is prepared to report its progress towards its sustainability targets and CSR will have a positive effect on its reputation. 7.3 (a) This relates to the three areas of sustainability highlighted in the Brundtland report that encourages organisations to take economic, environmental and social factors into account when making short and long-term decisions. Professional accountants have a responsibility to act in the public interest. This includes supporting sustainability and sustainable development and considering the risks to society as a whole in not acting sustainably.